Expanding RTAs, Trade Flows, and the Multinational Enterprise
39 Pages Posted: 30 Mar 2008
We test the relationship between the size of regional trade agreements (RTA) and openness by using a gravity equation with multilateral trade factors. Our sample includes eleven RTAs, seven with constant membership and four with expanding membership. Regional trade bias declines with the size of the club; three of the four expanding RTAs have already surpassed their 'optimal' size. We also explore the link between openness of the RTA and the geographic strategy of the multinational enterprise. We find strong evidence in favor of the regionalization strategy, which has been enhanced by the presence of RTAs.
Keywords: Trade Blocks, Regional Integration, Multinational Enterprises (MNEs), Plurilateral RTAs, Trade Creation, Trade Diversion
JEL Classification: F13
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